CRT and CIP in the Incoterms system
International trade is impossible without clear rules that determine who is responsible for shipping, insurance and logistics. There is a system for that. Incoterms (International Commercial Terms). Among the most demanded bases of supply are allocated CPT (Carriage Paid To) and CIP (Carriage and Insurance Paid To).
In this article, we will discuss how CPT and CIP differ, and in which cases they are most effective.
What is CPT (Carriage Paid To)?
CPT (Freight/Carriage paid before) This is a condition under which the seller pays for the delivery of the goods to the agreed destination, but the risks pass to the buyer already at the time of transfer of the goods to the first carrier.
Key points of CPT:
- The seller bears the costs of transportation, but is not responsible for the risks after the transfer of the goods to the carrier.
- The buyer arranges insurance (if necessary).
- The base is convenient for multimodal transportation (for example, car + sea transport).
What is CIP (Carriage and Insurance Paid To)?
CIP (Freight and insurance paid before) This is an extended version of CPT, where the seller not only pays for the transportation, but also organizes cargo insurance.
Features of CIP:
- Insurance is mandatory and covers at least 110% of the cost of goods (according to the Incoterms 2020 standard).
- The risks, as with CPT, pass to the buyer when transferring the goods to the carrier, but it is protected by the policy.
Table of obligations of seller and buyer
| Element of the deal | CPT | CIP |
| Transportation | Salesman | Salesman |
| Cargo insurance | Buyer | Seller (minimum 110% of the cost) |
| Customs clearance (export) | Salesman | Salesman |
| Customs clearance (import) | Buyer | Buyer |
| Risks of damage | Transferred upon transfer to the carrier | Transferred upon transfer to the carrier |
| Documents | Transportation | Transportation + Insurance Policy |
Transfer of risks
CPT: The seller pays for delivery, but the risks pass to the buyer at the time of transfer to the carrier.
CIP: The same thing, but in addition, the buyer receives insurance protection.
When to choose CPT and when to choose CIP?
- CPT If the cargo is inexpensive, the buyer can insure it himself or the risks are minimal.
- CIP - if the goods are valuable, fragile or complex (for example, sea freight or several stages of transportation).
Example of calculation
If the shipment costs $100,000:
- CPTThe seller pays for the transportation for $ 3,000, but the insurance falls on the buyer.
- CIPThe seller pays $3,000 for transportation + $1,000 for insurance, and the buyer receives a policy on 110% of the cost of the cargo.
CPT A basic scheme that minimizes the liability of the seller.CIP A more reliable option to avoid losses in case of damage to the goods.
